Other Dividend ETF Giants
VIG and VYM nicely illustrate the two most popular dividend strategies used by ETFs. There are other funds that use different variations of these strategies, but the concepts are the same.
For example, the iShares Select Dividend ETF (DVY)―the third-largest dividend ETF, with $16.4 billion in assets―selects 100 stocks "by dividend yield, subject to screens for dividend-per-share growth rate, dividend payout ratio and average daily dollar trading volume."
The resulting basket of stocks is then weighted by indicated annual dividend. DVY has a current distribution yield of 3.1%.
Meanwhile, the No. 4 dividend ETF by assets, the $15 billion SPDR S&P Dividend ETF (SDY), takes the dividend-growth strategy to an extreme. SDY only holds stocks of companies that have followed "a managed-dividends policy of consistently increasing dividends every year for at least 20 years."
The ETF's current yield of about 2.4% is higher than the broader market.
Then there's the iShares Core High Dividend ETF (HDV), the fifth-largest U.S. dividend ETF, with $6.2 billion in assets. The ETF follows an index that screens for companies with sustainable competitive advantages and strong balance sheets. It then selects the 75 highest-yielding stocks from that group.
Currently, the ETF has a distribution yield of 3.5%.
The aforementioned ETFs are only five of the many U.S.-focused (nonleveraged) dividend ETFs on the market today. Put up against all U.S. dividend ETFs, returns for VIG, VYM, DVY, SDY and HDV are toward the middle of the pack (funds focused on small-caps and midcaps have done better). Still, they are all handily beating the SPDR S&P 500 ETF Trust (SPY), which is up about 10% on the year.
See the table below for a full list of year-to-date returns for this segment:
Contact Sumit Roy at [email protected]